New Central Bank Governor for Iraq; Brazil and Argentina Look at Common Currency By James Christie
Good day. Iraq’s dinar has dropped sharply against the U.S. dollar in unofficial currency markets since mid-November, raising the cost of living in the country’s dollar-dependent economy. On Monday, that cost central bank governor Mustafa Ghaleb Mukheef his job, as many Iraqis blamed the U.S. for the dinar’s weakness. Prime Minister Mohammed al-Sudani has tapped former central bank governor Muhsen al-Allaq as a replacement. Meanwhile, Brazil and Argentina have started preliminary talks to create a common currency, as their leaders revive a proposal economists and central bankers have long criticized. Brazil’s President Luiz Inácio Lula da Silva said the objective is to reduce reliance on the U.S. dollar, which is commonly used in bilateral trade in Latin America. Business leaders and opposition politicians in Brazil said they saw the move as an ominous start to his economic policy just three weeks into his presidency.
Now on to today’s news and analysis.
Top News Iraq’s Prime Minister Dismisses Central Bank Governor
Iraq’s prime minister has dismissed the country’s central bank governor amid growing anger over the weakening of the local currency in recent weeks that has caused the price of food and imports to rise.
Prime Minister Mohammed al-Sudani said Monday he decided to replace the governor, Mustafa Ghaleb Mukheef, who requested to be relieved of the post he has held since 2020. The prime minister named Muhsen al-Allaq as the new central bank governor, according to the state-backed Iraqi News Agency. Mr. Allaq previously served in that role between 2014 and 2020.
Brazil and Argentina Discuss Creation of Common Currency
The leftist leaders of Brazil and Argentina emphasized the importance of maintaining each country’s currencies, implying that any new currency would operate in parallel to the Brazilian real and Argentine peso.
Rich Customers Pull Money From Banks Offering Paltry Interest Rates
Wealthy savers are starting to take their cash out of bank accounts in search of higher yields. Big banks are still paying paltry interest on checking and savings accounts despite the Federal Reserve’s steepest rate increases in decades. Their wealth-management customers are done waiting: They are moving the extra savings they accumulated during the pandemic into products whose rates have more closely tracked the Fed.
U.S. Economy Biden’s Green Subsidies Attracting Billions of Dollars to Red States
Republican-leaning states are attracting most of the clean-energy investments spurred by the Biden administration’s signature Inflation Reduction Act, which offers beefy tax credits and other support for clean-energy projects.
Hotels Embrace Blue-Collar Workers to Prop Up Business Travel
Hoteliers are cheering the boom in travel by blue-collar workers, as construction crews, travel nurses, truckers and sales teams from small and medium-size businesses have packed hotels for much of the past three years.
Companies Cut Temp Workers in Warning Sign for Labor Market
Employers are shedding temporary workers at a fast rate . In the last five months of 2022, employers cut 110,800 temp workers. Many economists view the sector as an early indicator of future labor-market shifts.
Glynn’s Take: Australian Inflation Pressures Seem to Be Ebbing Quickly By James Glynn
Confidence in Australia is rising that the massive surge in inflation pressures that dominated news headlines throughout 2022 is now rapidly receding.
If tamer data round labor scarcity, price pressures and capacity utilization continue to flow in, the Reserve Bank of Australia will likely bring its record-breaking string of successive interest-rate increases to an end within months, if not sooner. Read More.
Key Developments Around the World Europe’s Economy Picks Up, Reducing Fears of Global Recession
Unexpectedly upbeat surveys show business activity in the eurozone rose in January after successive declines in the second half of last year, raising the chances that the global economy could avoid a recession , economists said.
Germany, France Back EU Push to Counter U.S. Subsidies
Germany and France expressed joint support for a European Union effort to push back against tax breaks in the U.S. Inflation Reduction Act, increasing the likelihood the bloc can agree on simpler European subsidy rules .
New Zealand’s Tourism Rebound Strains Labor Market, Fuels Inflation
New Zealand didn’t expect the speed at which travel demand would rebound, and domestic vacationers and then international arrivals quickly overwhelmed the tourism industry, triggering a scramble for workers .
Janet Yellen Pushes China on Debt Relief for Zambia
U.S. Treasury Secretary Janet Yellen called on China to forgive debts owed by Zambia, whose struggle to restructure a $17.49 billion pile of foreign-currency loans and bonds has become a cautionary tale for other developing countries.
Financial Regulation Roundup SEC Scrutiny Blocks Some Crypto Firms From Going Public
Crypto companies seeking to go public over the past year have faced increased scrutiny from the Securities and Exchange Commission, as financial distress and failures spread across the volatile industry.
Crypto Lender Genesis Expects Quick Deal With Major Creditors
Bankrupt crypto lender Genesis Global Capital LLC expects a deal with major creditors to come together within days to provide a framework for a possible sale of the lending business or a restart of operations.
Banks Plan Payment Wallet to Compete With PayPal, Apple Pay
Wells Fargo, Bank of America, JPMorgan Chase and four other banks are working on a new product to allow shoppers to pay at merchants’ online checkout with a digital wallet that will be linked to their debit and credit cards .
Forward Guidance Tuesday (all times ET)
9:45 a.m.: S&P Global Flash U.S. Composite PMI
2 a.m.: U.K. producer-price index for December
10 a.m.: Bank of Canada interest rate decision and monetary policy report
11 a.m.: Bank of Canada press conference on interest rate decision and monetary policy report
Research U.K. Interest Rates Could Remain High for Longer
U.K. interest rates are likely to remain high for longer as the Bank of England is expected to raise its economic growth projections on easing energy prices, ABN AMRO senior economists Bill Diviney and Amit Kara write in a note. While lower energy prices will likely reduce inflation expectations, an improved economic outlook and a tight labor market mean the central bank will keep the bank rate high, according to the economists. “We think somewhat higher wage growth means the BOE is now likely to cut rates at a slower pace than we previously thought. The bank rate is still expected to end 2023 at 3.5%, from an expected 4% peak in March,” the economists write.
Eurozone PMI Data Bolsters ECB for Aggressive Rate Hikes
There is nothing in January’s eurozone PMI data that is likely to stop the European Central Bank from raising interest rates by another 100 basis points in the next two months, Capital Economics chief Europe economist Andrew Kenningham says in a note. The survey suggests business activity stagnated, but also a strong labor market and persisting price pressures, he says. “These surveys are likely to encourage the ECB to press on with significant further rate hikes over the coming months,” he says. Still, survey data signaled that demand remained weak, and the hit of higher interest rates is likely to feed through steadily in the coming months, probably hitting investment and consumption, Kenningham says.
Brazil and Argentina Lack Political Will for Common Currency
A decision by the governments of Brazil and Argentina to study a possible common currency to be used for trade is a bad idea because the two countries probably lack the political will to reach the economic policy and performance convergence required to achieve that goal, Hasnain Malik, strategy and research analyst at Tellimer Research, writes in a research note. A currency union would require similar inflation, interest-rate, fiscal balances and debt levels, he writes. The two countries have had loose fiscal policies in recent years, and Argentina recently defaulted for the ninth time on its sovereign debt, so both countries need to re-establish credibility in that area as well, Mr. Malik writes.
-Jeffrey T. Lewis
Basis Points An economic index measuring U.S. business cycles declined sharply again in December, suggesting a recession this year. Research group The Conference Board said Monday its Leading Economic Index fell by 1% to 110.5 in December after dropping 1.1% in November, a sharper decline than the 0.7% expected by economists polled by The Wall Street Journal. (Dow Jones Newswires) The U.K. economy contracted in January at its sharpest pace in two years, data from a purchasing managers survey showed, suggesting that rapidly rising interest rates are hitting activity. The S&P Global U.K. Composite Output Index fell to 47.8 in January from 49.0 in December, missing the 48.5 consensus forecast from economists in a poll by The Wall Street Journal. (DJN) The eurozone economy expanded in January for the first time in seven months, according to a purchasing managers survey, adding to signs that the region could face a milder-than-expected downturn this winter or even avoid a recession. The S&P Global Flash Eurozone PMI Composite Output Index rose to 50.2 in January from 49.3 in December. Economists polled by the Journal had forecast a print of 49.7. (DJN) Eurozone consumer confidence rose in January for a fourth consecutive month, reaching its highest level since February, as the region’s economic outlook improves amid falling energy prices and easing concerns over a deep recession. The European Commission said Monday its confidence measure rose from minus 22.2 in December to minus 20.9, broadly matching the minus 20.0 consensus forecast from economists polled by The Wall
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